Columbia Sportswear Company COLM began 2017 on a solid note, wherein both its top and bottom lines beat estimates and surged year over year in spite of a tough retail landscape. Also, management updated its outlook for the full year.
Columbia Sportswear Company Price, Consensus and EPS Surprise
Columbia Sportswear’s reported earnings of 51 cents in the first quarter that outpaced the Zacks Consensus Estimate of 41 cents by 24.4% and increased 13.3% from 45 cents delivered in the prior-year quarter. This was backed by the company’s overall solid sales and higher gross margins during the quarter.
Though shares did not have much impact following the earnings release, this Zacks Rank #3 (Hold) stock outperformed the Zacks categorized Textile – Apparel Manufacturing industry in the past three months. The stock rallied 10.4% as against the industry’s fall of 4.7%.
Q1 Highlights
Quarterly net sales came in at $543.8 million that beat the Zacks Consensus Estimate of $536 million by 1.5% and rose 3.6% year over year. The increase in net sales was primarily driven by robust sales in the Europe-direct business that witnessed another stellar quarter of mid-teens growth by the Columbia brand. Notably, this development led to double-digit increase in the company’s wholesale, brick-and-mortar as well as e-commerce businesses, alongside extending over its largest markets. In fact, the upside was also driven by the solid sales at the SOREL brand.
Cost of sales fell 2.7% year over year to $285.3 million. Gross profit gained 4.5% to $258.5 million driven by higher revenues and lower cost of sales. Also, gross margin expanded 40 basis points (bps) to 47.5%.
The company reported operating profit of $48 million, up 8.4% from the year-ago quarter. Furthermore, operating margin rose 40 bps to 8.8% in the quarter.
Regional Segments
U.S.: Net sales dropped 1% to $333.2 million due to the reduction in wholesale net sales, partly compensated by a rise in the direct-to-consumer net sales.
Latin America/Asia Pacific (LAAP): Net sales grew 16% (up 17% on a constant currency basis) owing to the increase in net sales to LAAP distributors along with growth in China and Japan. These were somewhat offset by lower sales in Korea.
Europe/Middle East/Africa (EMEA): Net sales jumped 8% (up 10% on a constant currency basis) to $55.4 million, backed by the solid improvement at its Europe-direct markets, partly offset by lower sales to EMEA distributors.
Canada: Net sales grew 3% (down 1% on a constant currency basis) to $36.9 million.
Category Segments
While net sales in the Global Apparel, Accessories and Equipment segments increased 1% to $440 million, the same climbed 14% (up 15% on a constant-currency basis) to $103.8 million in the Footwear division.
Brands
Global Columbia brand’s net sales edged up 3% to $449.1 million, SOREL brand net sales surged 50% to $27.2 million and Mountain Hardwear brand net sales rose 10% to $$27.7 million. However, prAna brand net sales slumped 7% to $38.7 million.
Other Financial Updates
Columbia Sportswear ended the quarter with cash and short-term investments of $590.5 million versus $451.2 million in the year-ago period. Further, consolidated inventories came in at $398.8 million, down 3% from the year-ago quarter. Total equity as of Mar 31, 2017 came in at 1,592 million.
Notably, the company bought back 616,152 shares worth $33.0 million in the first quarter. Management also declared a quarterly cash dividend of 18 cents per share, payable on June 1, 2017 to shareholders on record as of May 18.
Guidance
Columbia Sportswear updated its outlook for 2017. Management anticipates net sales to grow nearly 3% over sales of $2,377 million in 2016, mainly driven by its U.S. direct-to-consumer business.
Further, the growth is expected to be supported by contributions from three out of its four brands as well as four geographic regions. Moving ahead, management remains optimistic about performing well backed by its healthy financial position and robust brand portfolio. However, this will include adverse impact of one percentage point from foreign currency translations. Earlier, Columbia Sportswear projected net sales growth of 4% compared with 2016 levels when it reported fourth-quarter 2016 results.
Further, it awaits 2017 gross margins to rise nearly 30 bps versus 25 bps guided earlier. Moreover, the selling, general and administrative expenses (SG&A) are expected to rise marginally above the expected sales growth that will result in roughly 30 bps of SG&A expense deleverage.
In addition, operating income is also anticipated to rise about 3% in the range of $256–$265 million for 2017 versus 5% in the band of $260–$270 million, projected earlier. Further, operating margin is estimated to be roughly 10.8%, down 10 bps from the earlier anticipation.
Earnings per share for 2017 are projected in the band of $2.72–$2.82, compared with $2.72 reported in 2016.
Stocks to Consider
Better-ranked stocks in the broader Consumer Discretionary sector include Gildan Activewear Inc. GIL, Under Armour, Inc. UA and Carter's, Inc. CRI, each with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Gildan Activewear, with a long-term earnings growth rate of 12.3% has increased 10.7% year to date.
Under Armour, with a long-term earnings growth rate of 10.3% rose 7.2% in the past one month.
Carter's, with a long-term earnings growth rate of 12.2% grew 13.3% in the past three months.
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